The Competition Commission of India (CCI) recently slapped a Rs 63.5 crore fine collectively on GlaxoSmithKline Pharmaceuticals (GSK) and Sanofi Pasteur for attempting to collude to share a Union Ministry of Health tender for a meningitis vaccine and inflate prices. Indian health authorities have been immunising Indians performing Hajj, or the annual pilgrimage to Mecca, against meningitis since 2002. The case, which dates back to 2011, appears to be a great lesson in how not to tender.
What should’ve been a straightforward process for a single product with the same three suppliers year after year, took on the appearance of a farce with the tender being floated thrice over, more than one lawsuit, a disgruntled local producer and two vilified multinationals protesting their innocence. And to top it all, the guilt or lack of it of the Union Ministry of Health appears still open to question.
The CCI kicked off its investigation in 2013 on a complaint by Ghaziabad-based Bio-Med, one of three companies that has supplied the meningitis vaccine over the years to the government. Bio-Med manufactures the vaccine in the country while GSK and Sanofi import. Bio-Med alleged that the Ministry had abused its dominant position by changing its eligibility criteria without any reasonable rationale or explanation thus summarily disqualifying Bio-Med. And that GSK and Sanofi had colluded between 2002-2012 to share the meningitis tender “through bid rotations and geographical allocations.”
For those who want to know how the cookie crumbled, I have detailed the chronology of events later in the post with the responses from the three companies. But for those who already know the details, the key questions that the entire episode raises are :
-Why did the Health Ministry change its eligibility criteria knowing that it would curtail competition (the only local manufacturer would be disqualified) and thus its own power to command the lowest possible price?
-What is the relevance of the turnover criterion when it can be tinkered with repeatedly? As you will read below, the Ministry ultimately relaxed the criterion in 2011 since it was left with just one bidder.
-If collusion did occur, as was concluded by the CCI, was such a thing possible with no encouragement or participation by the government department involved in tendering?
-The Delhi High Court while disposing off Bio-Med’s pleas challenging the change in eligibility criteria did not find the Ministry’s actions unreasonable or arbitrary. (Bio-Med alleges that’s because “the opponents could buy” its solicitors.) But in the light of the CCI’s order and that CCI declined to investigate the government since it is not a “company” as per the relevant law, should there now be an investigation of Bio-Med’s first allegation by another agency such as the Central Vigilance Commission?
In the meantime, this vignette from the tendering process is a reminder of why so many are sceptical of government emerging a major buyer of drugs or other healthcare. But if India is still keen on universal healthcare, it needs to start inspiring confidence in the procurement system. Or the signal message that goes out will be this : Make in India by all means but sell to the Indian government at your own peril.
Here is the chronology :
-In 2011, the Health Ministry more than doubled the minimum annual revenue to be clocked by a prospective bidder in any of the preceding three years from Rs 20 crore to Rs 50 crore and added a new product specification (Indian Pharmacopoeia) to the meningitis tender. This effectively disqualified Bio-Med which had won and fulfilled meningitis tenders before and whose turnover was about Rs 42 crore. The company approached the Delhi High Court.
-The court allowed Bio-Med to bid in the tender. However, Bio-Med chief S P Garg said in an e-mail that the Ministry’s Medical Store Depot through which the tendering takes place allegedly refused to accept the bid since Bio-Med’s representative was behind the deadline by 30 minutes and “it involved the matter of their ‘akas'” (masters) in the Ministry.
-GSK and Sanofi bid for the tender but neither of them offered to supply the full volume of the tender. Government would’ve had to buy from both of them to tot up the whole.
– Their prices were much higher than the previous year’s lowest bidder (Bio-Med). The tender was cancelled and a new one floated. This time, Sanofi lowered its price and GSK stayed away. Sanofi now offered to supply the entire tender quantity if the government was willing to accept vaccines with a shorter shelf life. But since there was just one bidder, the tender was cancelled.
-It was floated again. This time, the Ministry, which seems to have backed itself into a corner, relaxed its own turnover criterion and dropped the new product spec, thus allowing Bio-Med to participate. Sanofi, in the meantime, went to court.
-In this final re-tender, Bio-Med bid lower than Sanofi but the tender was eventually split between the two since the latter secured a court order to that effect. Sanofi supplied its portion at the price set by Bio-Med (Rs 2373 per 10 doses compared to Sanofi’s Rs 2754).
-Ironically, in 2012 Bio-Med was once again disqualified (for a procedural reason, it appears) and Sanofi has won successive tenders, according to the CCI document.
-Bio-Med approached CCI in 2013. The CCI found GSK and Sanofi guilty of attempting to collude in the bidding for the 2011 tender (though, clearly, they were unsuccessful as the tender was cancelled). Both GSK and Sanofi refused wrongdoing and will probably appeal. (See their official responses at the bottom of this post).
-The CCI did not investigate the government department since it is not a “company.”
The key reasons that CCI found for collusion between GSK and Sanofi :
-The two bid at similar prices in the first 2011 tender (Rs 3000 and Rs 2899 respectively) and the quantities they bid for totalled up to a little more than the required volume
-GSK’s defence that it was unprepared to make the entire volume available within the stipulated time period was dismissed on the grounds that GSK is the largest producer of the vaccine globally and that the tenders are floated around the same time each year and therefore foreseeable.
-To Sanofi, CCI observed that if the company did have stocks with a shorter shelf-life available it need not have waited for a re-tender to make that fact known to the government and should’ve done so at the time of the first tender.
-The CCI did not accept the defence that the higher prices in 2011 were the result of inflation since in 2012, Sanofi’s price was lower than even Bio-Med’s in 2011.
It would be interesting to see how the appeals pan out since to my admittedly untrained eye it appears as though the order relies heavily on the companies’ ostensible inability to disprove collusion rather than on unequivocal proof that collusion did occur.
For the record, here are the responses of the companies
A spokesperson for Sanofi Pasteur India Pvt Ltd : “We are in the process of evaluating the order of the CCI. We strongly disagree with the CCI’s findings in this case and are in consultation with our legal advisors to file an appeal against the order. Sanofi Pasteur is a global organisation which adheres to and abides by all the laws and regulations that apply in each country in which it operates (including those related to fair competition). We have extended our full support to the investigation process of the CCI in this case. Since this is an on-going matter, we cannot comment any further.”
A GSK spokesperson : “We believe that we have complied with all applicable laws, including competition laws. GSK seeks to operate with the highest levels of integrity and in full compliance of local regulations. GSK India will consider all options following the review of the order passed and take action as appropriate.”
Bio-Med’s founder S P Garg stated that while he was “satisfied” with the CCI order, an investigation of the “ministerial part of government” by the CVC or the Central Bureau of Investigation was called for. “The real culprits who encouraged the accused need to be brought to books (sic),” he wrote.